When demand is inelastic, who bears the majority of the tax burden?

• A. Buyers
• B. Sellers
• C. The government
• D. The burden is always shared equally.

Answer: (A)

When a per-unit tax is added, the distribution of the burden depends on how responsive buyers and sellers are to price changes. The side that is less elastic (less sensitive to price) ends up bearing more of the tax. Demand is inelastic when buyers keep buying nearly the same quantity even as the price rises, so the tax mainly falls on them. They must pay most of the higher price, while the quantity bought doesn’t shrink much. The government collects the tax revenue, but the economic burden—the fall in welfare—goes largely to buyers in this case. The burden wouldn’t be equal unless both sides were equally unresponsive, and it wouldn’t fall primarily on sellers in this situation.